The Central Bank of Sri Lanka (CBSL) released its Purchasing Managers’ Index (PMI) for December 2025 on 16 January 2026, painting an encouraging picture of private sector activity as the country closed a year of gradual macroeconomic stabilisation. Both the Manufacturing and Services sectors recorded significant expansions, with the Services PMI surging to 67.9 and Manufacturing reaching 60.9. These figures, well above the 50-point threshold that separates expansion from contraction, reflect robust demand driven largely by festive season and year-end factors. For a nation still navigating post-crisis recovery, climate vulnerabilities, and global uncertainties, the data offers hope while underscoring persistent challenges that demand continued public policy attention.
The PMI surveys, conducted among large firms primarily in the Western Province, provide a timely snapshot of business sentiment and operational trends. When indices rise above 50, they indicate month-on-month growth; the higher the reading, the stronger the pace. December’s results mark a sharp acceleration, particularly in Services, suggesting that household spending, tourism-related activities, and retail trade provided a vital end-of-year lift to the economy.
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Manufacturing Sector: Steady Expansion Despite Logistical Hurdles
The Manufacturing PMI climbed to 60.9 in December from 55.5 in November, signalling a higher rate of growth. All sub-indices contributed positively, highlighting broad-based improvement. New Orders rose sharply to 63.8, and Production jumped to 61.2 from a neutral 50.0 the previous month, driven predominantly by the food and beverages sector. This surge aligns with seasonal demand for consumer goods during the festive period, a pattern that often supports employment and supply chains in manufacturing hubs.
Employment in manufacturing also expanded, reaching 58.5, as firms added workforce capacity to meet rising orders. Stocks of Purchases increased modestly, while Suppliers’ Delivery Time lengthened significantly to 62.5, reflecting heightened demand for inputs. However, the report explicitly notes adverse weather-related logistical delays as a contributing factor, alongside stronger material requirements. Early-month disruptions likely linked to heavy rains and flooding experienced in parts of the country temporarily hampered transportation and supply chains, yet the sector demonstrated resilience by recovering through the month.
For public affairs observers, these trends carry important implications. Manufacturing, particularly food processing, plays a critical role in food security and rural livelihoods. The sector’s ability to overcome weather shocks speaks to improving buffers built over recent years, but it also exposes ongoing vulnerabilities. Recurrent extreme weather events, exacerbated by climate change, continue to threaten supply consistency and cost stability issues that affect inflation expectations and household budgets. Policymakers may need to prioritise investments in climate-resilient infrastructure and early-warning systems to shield this vital sector from future disruptions.
Expectations for manufacturing activity over the next three months remain positive, supported by anticipated improvements in broader economic conditions. This optimism, if sustained, could translate into stable employment and contribution to GDP growth projected for 2026.
Services Sector: Remarkable Surge Reflects Public-Facing Recovery
The standout performer was the Services sector, where the Business Activity Index soared to 67.9 from a modest 50.5 in November a remarkable acceleration that indicates one of the strongest monthly expansions in recent memory. This sharp uplift was buoyed by robust performance across most sub-sectors, despite early weather-related disruptions.
Wholesale and retail trade led the charge, fuelled by festive season demand that traditionally peaks in December. Accommodation, food and beverage services also contributed positively, hinting at a seasonal revival in domestic tourism and hospitality. Other personal services and strengthened financial services activities rounded out the growth drivers. New Businesses expanded significantly to 64.6, suggesting entrepreneurs and firms capitalised on improved sentiment to launch or scale operations.
Employment continued its upward trend, albeit at a slower pace (52.6), as businesses expanded workforces to handle year-end operational needs. Notably, Backlogs of Work grew for the second consecutive month to 53.8, indicating that demand outpaced capacity in some areas a positive sign of sustained activity but also a potential pressure point if not managed.
From a public affairs perspective, the Services sector’s performance is particularly relevant. Services account for over 50% of Sri Lanka’s GDP and employ a large share of the workforce, especially in urban and semi-urban areas. The festive-driven boost in retail and hospitality directly benefits lower- and middle-income households through increased spending power and temporary job opportunities. Financial services’ strengthening suggests improving access to credit and transactions, which supports small businesses and individual consumers alike.
However, the report’s mention of early-month weather disruptions serves as a reminder of vulnerabilities in public-facing services. Flooding and heavy rains can disrupt transportation, tourism, and daily commerce, disproportionately affecting informal workers and low-income communities. The sector’s resilience evidenced by the strong rebound highlights adaptive capacity, but it also calls for enhanced public disaster response mechanisms and social safety nets to protect the most vulnerable during such events.
Looking ahead, expectations for Services activity over the next quarter turned markedly more optimistic, reaching 75.3. Respondents cited a combination of favourable macroeconomic conditions, seasonal tourism-related factors, and gradual operational normalisation following weather disruptions. This forward-looking confidence bodes well for continued recovery in public-oriented services.
Broader Economic and Public Policy Implications
Taken together, December’s PMI readings provide a positive close to 2025, aligning with other indicators of stabilisation such as improving reserves, controlled inflation, and record export performance earlier in the year. The seasonal tailwinds were undeniable, yet the underlying strength particularly in overcoming weather shocks suggests deeper resilience. Global PMI trends, as referenced in the report (S&P Global data as of 16 January 2026), show mostly rising activity worldwide, though often at slower rates, positioning Sri Lanka’s domestic momentum favourably.
For public affairs and economic governance, the data underscores several priorities. First, climate resilience remains a pressing challenge. Weather disruptions, though temporary, affected both sectors, reinforcing the need for integrated national strategies on disaster preparedness and infrastructure hardening. Second, the Services sector’s surge highlights the importance of supporting public-facing industries through targeted policies such as tourism promotion, SME credit access, and digital payment infrastructure to sustain inclusive growth.
Employment gains across both sectors are encouraging for labour market recovery, but policymakers must monitor whether these translate into quality, permanent jobs rather than seasonal spikes. Backlogs and delivery delays signal capacity constraints that could fuel cost pressures if unaddressed.
In conclusion, the December 2025 PMI reflects an economy gaining traction, with private sector confidence bolstered by seasonal factors and macroeconomic progress. For citizens and public services, this translates into tangible benefits: stronger retail activity, hospitality revival, and employment opportunities. Yet challenges like weather vulnerability remind us that sustained recovery requires vigilant policy focus on resilience and inclusion. As Sri Lanka enters 2026, these indicators offer grounds for cautious optimism, provided public institutions continue to address structural risks effectively.
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